I am myself a newbie, but this forum has helped me a lot, so I would like to share my experience/thoughts for new-comers, based on my experience.
Run the numbers first. If they do not make sense or do not give profit you want, move on.
If you look at 25 properties, maybe you will make 10 offers and maybe 1 offer will be accepted if you are lucky. So don’t get disappointed if your offers are not accepted. (This happened with me a lot and I got upset initially. Now I just keep looking.)
Based on my experience, we need to put down 20% and the lender will pay up-to 80% of appraised value, if you are taking loan.
The 80% rule is valid for first 4 home loans. After that, it will be 75% lending only as per Fannie Mae guidelines.
I had asked for 3% seller contribution, but the lender said that they will allow max. 2% seller contribution only (for investment properties only) as per Fannie Mae guidelines. The lender did email me the relevant rules and guidelines. I lost about $700 at the time of closing due to this. So keep this in mind. Please do not ask for more than 2% seller contribution for investment property if it is not a cash deal. (This is based on my experience).
My lender said that they will not lend money if the house does not have carpet or is missing appliances. They do it to ensure that they can sell the loan in secondary market. I don’t have cash to make cash offer, so I can’t look at such homes.
Hope that this helps. If any of this information is not correct or if you know any work-around, please contribute your ideas. Thanks again for this wonderful forum.
Thanks for posting your experiences. I think many newbies try to throw out multiple low ball offers hoping something will stick. Investors should always buy at a discount, but people can’t always buy houses for 5-10k. If you try to deal with a smaller lender who services their own loans (like a local bank), you can get many more than just four mortgages and you won’t have to worry about Fannie guidelines. This will also open the door to getting loans on properties that need some more work. Conventional buyers won’t be able to get a loan on a house with things like electrical problems, missing plumbing, etc, but you can get places like that if you use other means of financing.
I’ve convinced a friend to buy some rentals,when I found a really hot deal for him I told him to go at least the list price, and probable over,he said no, he was going to shave a few thousand off the list price and pick it up at a steal,
guess what, he has missed some really good deals because someone with experience came in and offered a more realistic price for the house and moved extremely fast,because the listing agent doesn’t know the value of a house, don’t think other investors don’t know the value,they do
Do I normally go in over list, no, but if I can run my numbers and it works great at list, I’m not going to go in and try to save a couple of thousand dollars and lose a deal that fits my model,
I agree with Andy. Everyone wants a great deal, but sometimes it pays to be realistic. There are plenty of people out there who will throw out 5k offers for anything and everything. We’ve got some really good deals before, but we’ve been able to accumulate a good amount of property because we’re willing to pay realistic prices. While the guy is out there offering 5k on 50 different houses, we’ve bought multiple places for 15-25k. If we can make money off it, we’ll buy it.
3. That's 80% of the PURCHASE PRICE, not appraised value (unless that happens to be less than purchase, but we're investors, that shouldn't happen). Best advise here is: Find a private lender
My mistake. That is correct. Bank will lend you based on LESSER of purchase price or appraisal price. (Bank gets appraisal done.)
4. Most lenders won't lend at all if you have 4+ investment homes, so the 75% is a moot point. Again, look for private lending
My lender does lend for 4+ homes. Per Fannie Mae guidelines, they won’t lend more than 75% after the 4th property. I was just trying to emphasize the Fannie Mae guidelines.
5. Investor offers don't usually ask for seller contributions at all anyway. Broken record, but it's not to find private lending
Then maybe investors SHOULD ASK for seller contribution. Why? Because you can get more loan by increasing offer price, but asking seller contribution. Say, I want to offer 100K for a property. I could offer $102K with $2K seller contribution. Lender will give me 80% loan on 102K Vs. 100K.
(Guess what goes here?)
Not trying to start a flame war, but you seem to be a big fan of private lending. Which private lender will lend me 30 year mortgage @ 4.75% rate? If I can get a cheaper loan, I will go there. That’s business.
Private lending has nothing to do with 30 year notes at 4.75%. Private lending is all about getting access to the cash you need to make the kind of offers that will get you real deals. If you’re looking to keep properties long term, then by all means, get loans on them that work for that.
Private lending means that you can make cash offers that close quickly, which will beat ANY financing offer, especially those with seller contributions. If you ever get an offer accepted like you’re proposing, then it’s because nobody else is bidding (that’s a bad sign).
It’s not about being a “fan”, ub. It’s about teaching what works.
Another option is to look at Fannie Mae Homepath properties. They are some of the easiest foreclosure deals to work with (quick responses from the bank) and you have great incentives like only 10% down on investments (less on owner occupants) and you pay no PMI.
That will only get you so far. I would look at more creative financing options if you plan on buying multiple properties.
Historically it has been a fact that cash is king but the only thing cash does for you is allows you to close quicker. I make a bunch of offers each time and I offer what I want to pay for the properties. I get enough offers accepted that there is no advantage to me to use cash.
What private money can do is cause you to get more houses than you can move into permanent financing. That is not a good place to be.
If someone is buying for cash and is not able to finance them all to hold, just sell a few for a profit and repeat. If you are buying right for cash, you will have a profit. The extra income will be taxable and that will actually help on the tax return when you apply for loans. The private investors will love you as you are making them a profit in the short term.